Wednesday, February 01, 2006

I think it's time to be a little less cryptic about what I'm up to on the home-buying front, so you'll have a little more context as to my current feelings about the housing market.Back in the fall, I was looking at apartments, and made a few offers. All of this snowballed into a 36-hour period of complete chaos when I was juggling 3 potential apartments:

The mysterious condo that I am actually buying, which was the most expensive option but it is super too, because, ta-da, it's a 2-bedroom with a small terrace, and therefore best overall level of great-ness!

How the hell can she afford a 2-bedroom, you may be thinking? (NYCMoney did a post not long ago about how hard it is to find a cheap one.) Of course I had to make some compromises. First of all, it is a very small 2-bedroom-- smaller than many 1-bedrooms, though the layout uses the space quite effectively. And it is a bit further away from Park Slope than I originally wanted to consider. But the location is what helped me afford it in more ways than one, as I was able to get a better mortgage rate than I could have for something in prime Park Slope. The other big compromise that I'm making is that I'll be paying more cash up front than I had originally planned on. This is a new-construction condo, which in NY means that the buyer has to pay additional taxes that would otherwise be paid by the seller-- you have to factor that in to the asking price. I am also planning to pay points to get my loan rate down (if I were closing today, my rate would be about 5% for a 30-year fixed mortgage). But the good thing is that I'll have a few months to bolster my cash reserves: the construction won't be finished until some time this summer, so I'll have more savings, as well as a tax refund and a bonus in the bank. Of course the downside to the delay could be that interest rates keep going up.A lot of factors played into my decision to go for this condo. Although new construction has its risks, I really liked the idea of not having to deal with the expense and hassle of doing renovations on an older apartment. I also liked the developer's sense of priorities. Most new developments these days are "luxury" condos, and they are always way out of my price range. It's very rare to see a new condo development where they aren't spending a lot on high-end bells & whistles, and snazzy exterior details or lobby space-- but I found one of those rare places. I saw a completed apartment in a building that follows the exact same design, and it seemed solid and of good quality, but the lobby and outside were just basic and utilitarian. Inside, they used decent materials-- not totally high-end, but not cheapo tacky either. (Yes, there are lots of bait & switch horror stories about new condos that aren't completed with the specs as promised but I think I have a fairly good shot at getting more or less what I'm supposed to-- we'll see!)Some of the key things that made me feel it was worth the risk in the current market were A) getting 2 bedrooms. This makes the potential rental value much higher so I'm unlikely to ever have to rent it out at a loss. And B) the taxes and common charges are extremely low,which keeps my monthly costs within my budget. This 2-bedroom will actually cost me less per month than the tiny studio that was half its size. And C) as I've said before, and as the NY Times just reported this past weekend, Sunset Park (in which they include everything between Park Slope and Bay Ridge) is becoming a destination for people priced out of other parts of Brooklyn. The transit is convenient and there are still "affordable" brownstones, and a lot of new condos, so I think property values there have potential to go up, unlike in Park Slope, which is a fully developed neighborhood that doesn't have much room for improvement. But even if my new neighborhood stays as it is, it's safe and has all the basic services I need-- it's not like I'm moving into a slum!

As usual, I like to look at the potential downside. What if everything goes wrong? My closing is delayed and interest rates go way up? Actually, my lawyer made sure my contract had a provision that allows me to bail on the deal without penalty if prevailing interest rates go above a certain level. I feel better knowing I am protected from anything really dire. But let's say I get stuck paying more than I had hoped, and the finished apartment isn't quite what I expected. (This would be mainly cosmetic, as again, we put a provision in the contract that the construction not deviate from the floor plan measurements by more than 3%.) I still think it would be very difficult to find an equivalent apartment with private outdoor space for what I'll be paying, so I think prices would have to go down a LOT for the grass to look greener. If for some reason, I don't end up being happy there, I'll try to rent it out. I should still be able to at least break even, even at the highest interest rate at which my contract obliges me to buy the place.This condo is going to cost me a lot more each month than the rent I pay now-- but that is the up-front, before tax-break cost. I will have to be careful to keep my spending in control, as I won't have as much of a cushion of emergency cash to dip into. But I'll get a better tax refund at the end of the year, and when you factor in the equity I'll be building each month, I will only be spending a little bit more than I am now, in exchange for a much nicer space to live in. When I was thinking I'd have to buy a studio, I knew it made sense for the long-term financial reasons, but it was hard not to feel a little depressed about committing myself to one-room living for the forseeable future. Now, even if in the short term I'm trapped by falling prices, I'll at least have a little room to stretch out, a nice kitchen, good storage, and the holy grail of NYC, my very own bit of outdoor space. I'll feel like an adult with a real home. I really hope I can move in before the end of the summer-- I plan to spend every possible minute sitting in the sun on my little terrace!

6 comments:

But don't wait until filing your taxes to get a "refund"...you can adjust your witholding allowances in advance so that money isn't even taken out in the first place. One of my first posts had details about how i use the IRS's calculator each year to tweak it. When I follow through, I usually end up getting a couple hundred in refund and when I forget (like in 2004) I was owed over $6,000! (sure would have been nice to have an extra $500 each paycheck...sheesh!)

I'm just waiting until I start up my 401(k) again to change my witholding for 2006.

Congratulations! I have to say getting my condo went a long way to my current home happiness. My place is really tiny and you will be happy with a 2 bdrm. If you ever get pinched, you can rent out one of the rooms for a little while. Sounds like your location is great. You are so lucky to have a terrace!

I, too, went for a no-frills community. Instead of going for shoddy new construction in the hottest neighborhoods in Arlington, I picked a modest place around the corner from some friends. I can ride the bus to the cool places, walk to a library, running paths/gravel track, tennis courts, and parks. The building is older and we're undergoing some major HVAC repair this year, but for the middle range HOA fee, I feel like it's still a good deal. I don't need a 24 hour concierge service, exercise room or indoor pool.

The only problem is that I will be unable to rent it out at market rates and still cover the mortgage and fees. But it makes a nice first-time buyer unit in a market that is still sky-high.

About Me

My name is Madame X, and I am a 40-something single woman living in Brooklyn, NY. I write about how much money I make, what I spend it on, how much I save, how I budget, my home-buying experiences, my financial goals and ambitions, my thoughts on class and what it means to be rich or poor, and anything else that relates to money. (More about me here, here, and here.)If you take any of my advice, do so at your own risk as I am not really qualified to give it. If you have advice to share, please do, and many thanks!Ad proceeds from this site are donated to worthy causes.